09 June 2008

Appeared in the papers again today. In fact, it was quite a funny moment. The article was on the front page of The Edge Financial Daily; but the picture on the cover was NOT me - not that I had wanted to, but some of my friends just got the wrong idea and wondered if they made a photo mistake!

Anyways, in the article, I had mentioned that we might consider setting up other entities to enhance our earnings further, such as forming a Real Estate Investment Trust. This is something that I believe will enhance earnings for the Group - however there is nothing on paper yet.

PETALING JAYA: Crest Builder Holdings Bhd plans to develop more commercial properties in the Klang Valley to boost recurrent rental income, which may eventually prompt it to set up a real estate investment trust (REIT).

Geographical diversification is also on the cards. Locally, with some RM1.3 billion worth of outstanding construction jobs, Crest is considering a foray into Johor. Overseas, it hopes to establish bases, possibly in Singapore, Vietnam and Middle Eastern countries such as Qatar and Oman.

“In the next three to five years, if we have another three or five more office blocks, perhaps we could set up our own REIT,” Crest executive director Eric Yong Shang Ming told The Edge Financial Daily in an interview.

Recurrent rental income is deemed pivotal for construction and property development firms like Crest to safeguard earnings against cyclical income in both sectors.

“Ultimately, we want to go overseas. It’s just that we are waiting for the right time. We do not want to go looking overseas when we are hungry and desperate,” Yong said. As a building contractor, main board-listed Crest builds properties in Malaysia for local and foreign developers.

Its real- estate division has completed its maiden project - the “3 Two Square” in Section 14, Petaling Jaya. The commercial property sits next to “The Crest” office tower which accommodates the firm’s headquarters.

Upcoming projects by the property division include the “Tierra Crest”, a 17-storey office project in Kelana Jaya, and a mixed project known as “Alam Hijau” in Batu Tiga, Shah Alam. Tierra Crest, intended to be leased out, will have a gross development value of about RM130 million, according to Yong.

Alam Hijau is a five-phase project that comprises apartments, offices, and retail outlets. Phases 1 and 2 medium- cost apartments have been entirely sold to Syarikat Perumahan Negara for RM147 million.

Meanwhile, Crest’s outstanding construction orders of around RM1.3 billion from external real-estate clients, include unbilled sales of some RM700 million, according to Yong. The unbilled portion is expected to sustain earnings for the next two years.

By December, the current RM1.3 billion orderbook is anticipated to balloon to RM1.8 billion in anticipation of more jobs. So far this year, Crest has tendered for RM1.5 billion worth of jobs and secured about RM400 million.

In 2007, it had bid for RM2.5 billion worth of projects and won some RM160 miliion, Yong said. Going forward, Crest’s established business links with foreign developers may offer a possible platform for the Malaysian firm to export its expertise.

On Crest’s potential ventures in Vietnam and the Middle East, Yong said the company could form joint ventures with local parties in the respective countries, deemed high-growth construction and property markets.

In a note dated Feb 27 this year, Inter-Pacific Research Sdn Bhd analyst Koay Yi Chuan said although Crest’s construction division had recorded declining margins in the previous quarters, the margin is expected to improve in fiscal 2008.

This will be helped by more building contracts whose values are based on the upward revision in prices of building materials. “Crest is poised to post strong earnings from its property developments coupled with anticipated improving construction margins ahead,” Koay said.

Crest added one sen or 1% to RM1.02 last Friday, with 109,700 shares done. The stock has fallen 20.3% so far this year, underperforming the wider market’s 13.6% decline.

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The blogposts and opinions posted and expressed here and in any of the corresponding comments are the views and opinions of Eric Yong and do not necessarily reflect the views of Crest Builder Holdings Berhad and any of its subsidiaries.